De-risking: 'The pure defined contribution plan as an effective concept component'

*This article was first published in Betriebs-Berater and is used here with the publisher's consent.

The pure contribution plan is an important de-risking component in company pension schemes.

Interest rate volatility and high inflation rates. Pension schemes that are seen as rigid in companies with a turbulent M&A history. These factors determine the market environment for company pension schemes and put companies under pressure.

From a commercial law (HGB) and international accounting (IFRS) perspective, this often leads to companies implementing pension schemes that can be difficult to plan for from a balance sheet perspective. So companies might take a de-risking approach in an attempt to overcome this.

This involves various strategies to achieve greater economic and accounting predictability. Companies might change the content of the pension adjustment review owed in accordance with Section 16 (1) BetrAVG. They could switch to a pension fund to decouple pension obligations in the commercial balance sheet. Or they might spin-off of pension obligations to a “pensioner company” under conversion law with the aim of “deconsolidation” in the balance sheet in accordance with HGB and IFRS.

If used in the right place, these are all sensible and effective “de-risking measures” for pension obligations that have already been earned. But the decisive factor isn't only dealing with the past, but also sustainable positioning for the future. The purely defined contribution commitment form is suitable for this purpose. It's defined in Section 1 (2) no. 2a BetrAVG, which was introduced on 1 January 2018 by the German Company Pension Reinforcement Act (Betriebsrentenstärkungsgesetz – BRSG).